Government has virtually ticked all the boxes on reform progress towards economic transformation under the two-year Transitional Stabilisation Programme (TSP), with the successor blueprint set to consolidate growth and guarantee attainment of an upper-middle-income economy by 2030.
The new dispensation led by President Mnangagwa crafted the TSP (2018-2020) to bring about macro-fiscal stability and laying a solid foundation for private sector led growth after years of stagnation under the previous regime. The TSP ends this year and, among other key objectives, sought to build confidence in Zimbabwe through normalising relations with the global community, deepening democratisation of the country, fostering an improved business environment and high standards of service delivery across the spectrum.
The economy has, however, suffered setbacks such as climatic shocks in the form of drought and cyclones, energy challenges, currency volatility, other unforeseen macro-economic risks and recently the Covid-19 pandemic. While these have resulted in slow recovery, Zimbabwe is now on a favourable ground to aggressively take off going forward, riding on the successful reforms achieved so far, said Finance and Economic Development Minister Professor Mthuli Ncube.
He revealed this in his Progress Report on Economic Reforms under the TSP and the Crafting of the National Development Strategy 1 (NDS 20201-2025), that was issued yesterday. The next NDS programme will be Integrated Results Based Management (IRBM) compliant and already indicative national priorities have been crafted. Cabinet has also approved the concept note. Prof Ncube stated that major milestones have been scored on the reform agenda with macro-fiscal stabilisation now in full force as well as other cross-cutting economic enablers.
Regarding fiscal consolidation, Prof Ncube said the Government has managed to eliminate the twin fiscal and current account deficits with the country now in surplus mode. For instance, about $800 million surplus was realised between January and June 2020, building up from the initial $395 million surplus achieved in December 2019.
“The surpluses serve as a buffer for shocks such as the impact of Cyclone Idai, drought and Covid-19 pandemic. Surpluses are also supporting social services delivery, social protection and infrastructure development,” said Prof Ncube.
These are being buttressed by enhanced revenue collections and sealing of leakages, as well as expenditure containment. In support of monetary policy on containing money supply and hence inflation, Prof Ncube said recourse to Central Bank overdraft was a thing of the past while the issuance of Treasury Bills is now only for budget purposes. He said the public wage bill was now below 50 percent of total revenues from about 92 percent in 2017.
Government has also rationalised posts and froze hiring of more workers, save for critical sectors. Prudent public finance management controls have been rolled to all departments and local levels while a new procurement Act is now functional.
Significant ground has been covered in refining and strengthening monetary policy to sufficiently support fiscal policy for stabilisation with inflationary pressures now kept under check. The introduction of the foreign exchange Dutch Auction system in June this year has greatly reduced exchange rate instability and improved price discovery.
A second auction system for small-scale operators has also been introduced to assist producers. The exchange rate, which had moved from ZWL$25:US$1 to around ZWL$83:US$1; has since stabilised around that level during the better part of July, August and September 2020.
“Price stability is now visible in line with convergence of parallel and auction rates,” said Prof Ncube.
The Government has successfully re-introduced the local dollar, which is now trading alongside other currencies with a noticeable continued downward trend on reserve money to $13,35 billion by August 2020 from $16,66 bn in July 2020. The country is now implementing an exchange rate linked Open Market Operations (OMOs) investment instrument settled in local currency to allow wealth holders to preserve their value. The bursting of the speculative bubble on the Zimbabwe Stock Exchange driven by dually listed shares and the curbing of speculative borrowing through appropriate interest rates adjustments (recently increased from 15 percent to 50 percent then further to 70 percent for the RBZ overnight window), have also worked well for the economy, said the minister.
Furthermore, the Government has streamlined operational lines of mobile banking operators and introduced interoperability of platforms by adopting a national switch. The TSP period also saw removal of fuel, electricity and gold subsidies, which were too costly for the Treasury. To strengthen the viability of financial services, the Government has extended the minimum capital requirements deadline to 2021 as well as introduced an auction market for Treasury Bills.
The Treasury now projects that annual inflation will consistently drop in line with the reduction in the month-on-month inflation from 31,7 percent in June 2020 to around five percent in the last quarter of 2020.
The drive to promote savings mobilisation within the public has to date yielded $768,3 million as at 30 June 2020 from an initial Treasury seed money allocation of $70,4 million. Another key milestone is the establishment of the Victoria Falls Stock Exchange (VFEX), which will play a key role in attracting increased offshore investment and deepening capital markets. To plug the patient capital gap in the market Government has set up a $500 million National Venture Fund, which will be periodically reviewed. The new dispensation has also rolled out major structural reforms. In the political arena these included the alignment of laws to the new Constitution, governance and institutional reforms covering aspects such as devolution, compensation of former farm owners, state owned enterprises reform, ease of doing business, competitiveness and budget transparency. In July, Government and commercial farmers signed the Global Compensation Deed Agreement. The agreement settled for an agreed amount of US$3,5 billion to be paid to former commercial farmers for improvements, land clearing and biological assets. To date, more than $2 billion has been disbursed to finance devolution projects countrywide.
To entice investors and enhance ease of doing business the new dispensation has abolished the indigenisation and economic empowerment regulations. This, and other comprehensive reforms, have seen Zimbabwe’s 2020 World Bank ranking settling at 140 from the previous position of 155. Essentially, the country has improved by 15 positions and is one of the top 20 on the world and top five in Africa doing business reformers, according to the 2019 World Bank report. Moreover, Zimbabwe is now ranked third in Southern Africa on budget transparency by the Open Budget Survey (OBS) of 2019, with a Budget Index Score of 49, up from 23 recorded in 2017. Within the last two years, the Government completed the land audit and replaced the Command Agriculture financing model with a private sector funded option. The farm downsizing in progress while 1.8 million farmers have been trained for Intwasa/Pfumvudza technique meant to boost food production this season.
The mining sector, which is currently contributing about eight percent to the Gross Domestic Product is targeting a US$12 billion mining industry by 2023, which represents a 344 percent increase from the USD2,7 billion achieved in 2017. Similarly, the manufacturing sector has launched the Zimbabwe National Industrial Development Policy (2019-2023) and now pursues an export-led industrialisation agenda with about US$2 billion required for retooling.
The Treasury report further shows that alignment of laws to the Constitution is almost complete. By end March 2020, 144 laws had been amended out of 183 that need to be aligned to the Constitution. The Government is also supporting several regional economic development programmes such as the; spatial development in Victoria Falls agriculture-related spatial development in Bulawayo Kraal (Binga); Kanyemba (Mash Central); Tugwi-Mukosi Dam area and Batoka city. On the international re-engagement drive, the Government has changed diplomatic staff in key embassies with the thrust now on economic diplomacy and regular engagement with foreign diplomats. Continuous engagements with multilateral and bilateral creditors on international debt arrears is ongoing as well as continuous payment of token payments on international arrears. To mitigate the Covid-19 impact, the Government has set aside an $18 Stimulus Package to cushion productive sectors. It has also opened medical staff posts and re-allocated the budget. Herald